From resource to capital
A changing mindset on people, leadership, and sustainability
For a long time, we have become used to referring to the people-oriented functions of an organization as “HR”. HR, of course, stands for Human Resources. We are familiar with HR issues, HR professionals, HR practitioners, and the like.
In recent years, however, we have been hearing more about HCM instead of HR. HCM stands for Human Capital Management.
So are the wordsmiths just bored that they just invented another term to confuse us, or is there a genuine difference between human resources and human capital? After all, both deal with people within an organization.
It turns out there is — and the difference is big.
In a presentation by Xavier Bariller which he shared on the Internet, we learn that the difference between resource and capital is more than semantics. It is not a matter of getting tired of an overused term and then coming up with a new one. It’s a change in mindset, he said: Resources are used, while capital is grown.”
An example of resource is equipment: purchased at a certain price, expected to generate a certain level of productivity, and retired at a certain point in the future.
Our usual notion of human resources issues are payroll, tax regulations, attendance, sick leaves and benefits and other laws.
This would probably still hold in a production economy. But we are not anymore in this production mindset. We have to stop thinking of people we can acquire, use and then dispense with.
“Human capital” is the more apt, if not more fashionable, term. Human capital pays human intelligence the recognition it deserves.
Foremost, human capital is not tangible. This does not necessarily mean it is not observable. It can be observed, followed and developed in terms of the results it generates.
There is no single representation of human capital. It is not one dimensional. Different angles and layers are used in solving problems of differing complexity.
Human capital has to do with thoughts, feelings, beliefs, perception, values, purpose. One cannot put a price tag on these things that would apply to all others. One can, however, measure these in terms of how they shape and affect a person’s performance and contribution to the organization.
The challenge now for organizations is how to optimize human capital such that its development is aligned with the direction of the whole. This is why human capital needs management.
And this is why solutions such as SuccessFactors are developed – to make organizations sustainable.